SKEMA BUSINESS SCHOOL Global risk and the mounting wealth gap Michel Henry Bouchet MYTH = GLOBALIZATION GENERATES GROWING ECONOMIC WEALTH AND WELL-BEING FOR ALL Fact: Economic growth boils down to rising GDP, that is not development! GDP says nothing regarding wealth distribution nor regarding inclusiveness and sustainability 1
FACTS: THE JURY IS STILL OUT 2016 research report: World Bank re-definition of extreme poverty: moving from $1,20 to $1,90 10% of world population still < poverty line (767 million down from 881 million in 2012), mainly in South Asia and Sub-saharan Africa Small number of countries experiencing declining inequality between 2008 and 2013 (UK, Germany, US, Brazil, China) FACT: INCOME UNEQUALITY IS NOT A MONOPOLY OF DEVELOPING COUNTRIES! 1. GINI index of revenue unequality worsens for many OECD countries since the global financial crisis (including France) 2. Since the mid-1980s and the worldwide extension of the market economy, unprecedented distortion in value-added distribution in developed countries 3. Rising share of profits in GDP/falling share of wages: income equality has worsened According to McKinsey, 2/3 of households in 25 advanced economies, the equivalent of 550 million people, had their wages and income flat or falling in 2015 compared with 2005. 2
0,85 0,8 0,75 0,7 0,65 0,6 Share of labour wages in GDP % France United Kingdom Germany United States FALLING SHARE OF WORK SALARY IN GLOBAL VALUE ADDED 1980-2015 0,55 0,5 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Scissor effect: gap between average wages and labour productivity in the OECD Source: OECD data THE RACE BETWEEN WAGES AND PRODUCTIVITY IN THE US (AND MOST OECD COUNTRIES!) 3
Denmark Slovenia Slovak Rep Norway Iceland Czech Rep Finland Belgium Sweden Austria Netherlands Switzerland Hungary Germany Poland Luxembourg Korea Ireland France OECD Canada Australia Italy Spain Japan Portugal Greece UK Israel Turkey USA Mexico Chile 11/09/2017 GLOBALIZATION & INCOME INEQUALITY: AFTER DECLINING IN THE FIRST HALF OF THE 20TH CENTURY, INCOME INEQUALITY MAKES A COMEBACK! Share in income distribution of top 1 percent Hyperfinance s emergence in the 1980s coincides with the rising share of income for capital owners and top executives Source: IMF 0,50 0,45 0,40 0,35 GINI INDEX OECD COUNTRIES The bad The bad The ugly 0,30 0,25 The good 0,20 0,15 0,10 0,05 0,00 OECD 2016 4
US FAMILIES INCOME DISTRIBUTION GAP GINI INDEX 1947-2015 = RISING INEQUALITY + SHRINKING MIDDLE-CLASS US REAL MEDIAN HOUSEHOLD INCOME 1980-2014 In 2010-15 growth has been slow, and big businesses and wealthy investors have been its major beneficiaries, rather than middle-class wage earners, but it has not been a job-less recovery with wage stagnation. However, median income is still <1999, and it does not say anything regarding distribution. Moreover, income is a flow and can hide wide wealth gaps. (US Census Bureau Sept. 2016) 5
THE SHIFT IN US INCOME DISTRIBUTION 1971-2015 Source: Pew Research Center 12/15 CHINA S RISING WEALTH GAP Gini coefficient reaches 0,5 6
US WEALTH ACCUMULATION: TOP 0,1% 1913-2013 = 22% RISING GROWTH OF CAPITAL RETURN> ECONOMIC GROWTH RATE = LARGER INCOME INEQUALITY Source: T. Picketty 2014 7
FRANCE: EVOLUTION IN PER CAPITA INCOME BETWEEN 10% POOREST AND 5% RICHEST 1996-2010 Richest 5% Poorest 10% INSEE 09/2012 ASSESSING WEALTH CONCENTRATION IN THE OECD 8
WHAT TO DO, THEN? NO SILVER BULLET SOLUTION STIGLITZ Capitalism is failing: Need of fiscal stimulus to boost consumer spending, minimum wage increase, and tax incentives for labour-intensive investment Kuznets and Liberal school Patience! Trickledown economics Better education, life-long learning and retraining, labour market mobility, human capital investment PIKETTY After WWII, «golden age» of capitalism, followed by soaring inequality? = Global wealth tax PIKETTY S GROWING WEALTH GAP: RIGHT OR WRONG? Rate of return k (5%) on financial assets > g real economy s growth rate (2,5%) = rising share of K in GDP = growing inequality = patrimonial capitalism Rising value of K due to monopoly power, rents, stock markets, land value speculation Brookings Inst., 03-2015 IMF 08-2016 1. However, rate of return on K lower than assumed by Piketty 2. Innovation and technology lead to temporary higher income for entrepreneurs 3. Only real estate owners and not financial capitalists get richer and richer! 4. Each and every «capitalist» is not a rentier 5. Change in savings rate can offset change in income distribution 6. Decreasing share of wages due to lower union membership and de-skilling process 9
MEASURING SOCIO-ECONOMIC PROGRESS ACROSS TIME AND ACROSS COUNTRIES? COUNTRY RISK HAS TO DO WITH INCOME DISTRIBUTION, WEALTH GAP, INCLUSIVE GROWTH AND SOCIO-ECONOMIC DEVELOPMENT! SUSTAINABLE GROWTH REQUIRES SOCIAL MOBILIZATION AND POLITICAL STABILITY WITHIN A «NATION» RATHER THAN IN A «COUNTRY» Development = social inclusiveness Σ (policy choice + political choice) 10